Wednesday, February 8, 2012

The Myth of the Well-heeled Senior

One constant public policy challenge is that some things that people fervently believe to be true—often based on their personal observations—just aren’t so. Take the myth that most senior citizens are well-off—and can afford to pay more for their health care.

If you believe this to be true, then it makes eminently good sense to raise Medicare co-payments. Or to lift the restrictions on doctors charging more than Medicare’s approved amounts. Or to give seniors a voucher so they can shop around for coverage, even if though this might mean they would have to pay the difference between the voucher amount and the actual premium. They can afford it, right?

Not really. Most seniors are less Warren Buffet and more all-you-can-eat buffet types, searching for ways to stretch their limited fixed incomes. The Census Bureau’s data on household income by age shows that the median income for households whose occupants are 65 and older is only $31,354, the lowest of all groups except those aged 15-24. For all households, all ages, the median is $49,177.

There’s more. Crunch the Census Bureau numbers, and you’ll find that 47% of senior households have incomes of less than $25,000. Twice as many senior households reported incomes below $15,000 (19%) as those with more than $100,000 (9%). Some 12% of senior households have incomes between $50,000 and $75,000. Thirty percent of senior households have incomes between $25,000 and $50,000.

[Note that the above figures are from 2009 Census data, the most recent I could locate. Given the deep and abiding economic slowdown since then, there is no reason to expect that things are much different today.]

And the Census Bureau data probably overstates individual seniors’ incomes. A study by the Urban Institute for the Kaiser Family Foundation reports much lower median incomes for Medicare beneficiaries, most likely because the Census Bureau data cited above is for households with occupants age 65 or older, which may include more than one senior in the household. The 2010 median income for individual seniors, according to the Urban Institute study, was only $22,000, and less than 1% had incomes above $250,000. Most also had very limited assets and savings.

Also, most seniors depend on Social Security for their incomes. “For more than half (55%) of elderly beneficiaries, Social Security provides the majority of their cash income. For one-quarter (26%), it provides nearly all (more than 90%) of their income. For 15% of elderly beneficiaries, Social Security is the sole source of retirement income,” reports the Center for Budget and Policy Priorities.

And seniors on Medicare already pay a lot for their health care. Another study for the Kaiser Family Foundation finds that “median out-of-pocket health spending as a share of income increased from 12% in 1997 to 16% in 2006,” and “1 in 4 Medicare beneficiaries spent 30% or more of their income on health expenses in 2006; while 1 in 10 beneficiaries spent more than half their income on health expenses.”

So here’s the rub: many of the proposals to reform Medicare essentially shift more costs to seniors, or at least to some of them—through vouchers, higher deductibles, higher co-insurance, or raising the age of eligibility—yet most seniors don’t have the means to pay more. Some surely could, of course—and from a fairness point of view, plus bringing in some more revenue, it might make sense to ask them to pay more. But it won’t bring in enough revenue to solve the fiscal crisis facing Medicare, and it could put many seniors at risk of not being able to afford their health care. Is that what we really want to do?

There also are strong arguments—like the right of patients and physicians to privately contract for services—that can be made for lifting the restriction on doctors charging seniors more than Medicare’s approved amount, especially as long as the government continues to threaten them with double-digit cuts because of the Medicare SGR formula. But let’s not kid ourselves: relatively few seniors have the financial resources to make up the difference between what Medicare pays and what their doctor considers a fair fee. And can physicians really know which of their patients can afford to pay more and which ones should be charged less? Even seemingly well-off patients may not be doing as well as they seem, and many might not want to discuss their personal financial circumstances with their doctor. Appearances, after all, can be deceiving.

It is undeniable that the financing structure for Medicare will need to be changed, and some recipients will have to pay more for it. But we need to proceed with caution, and not allow the myth of the well-heeled senior to drive public policy decisions, when most seniors are just getting by.

Today’s question: What is your reaction to the data that most seniors are not well-off, and what do you think it means for proposals to require them to pay more?

These numbers would track with my experience with family, friends, and fund raising activities. A number of years ago I was involved in raising funds and was told to hit up the rich old folks. A look at the demographics of the organization, and some personal interviews, showed that was not going to work.

Not covered in the example are those who are now being forced out with 30 years of service, some as young as 50, with the resulting low pension and often little or no insurance coverage. Additionally we have those who are divorced, or have lost a partner, and are now looking at retirement based on one income.

The Great Recession has now exceeded the Great Depression in terms of length leaving those who once had an asset based looking at a smaller or nonexistent financial reserve. Interest rates have been, and looking forward will be, below 1% on bonds.

The result has been not only those 65 and up suffering a financial difficult time, but a follow on group that will not be in a position to underwrite their health insurance needs.

My faith in the current group of political leaders to find a viable solution remains low.